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Stocks prices raced ahead to a 2% gain last week, finishing at their highest levels since late 2007. The fireworks were fueled by the new economic stimulus announced by Federal Reserve Thursday that suggested interest rates could remain low until 2015.

A German court decision Wednesday that approved the main European bailout fund led to a brief rally, but the "market pivoted right on the Fed news," says Jeffrey Kleintop, the chief market strategist for LPL Financial.

The Fed basically said it would continue its monetary-easing policies until they worked. The decision offset news of rising and deadly Middle East tensions that resulted in numerous deaths, including that of the American ambassador to Libya.

The Standard & Poor's 500 index rose nearly 2%, or 28 points, to 1465.77. That's 6.4% below the all-time high of 1565.15 set Oct. 9, 2007. The Nasdaq Composite jumped 48 points, or 1.52%, to 3183.95, the best close since Nov. 9, 2000.

Specifically, the Federal Open Market Committee announced a third round of quantitative easing; that is, a purchase program of $40 billion per month of mortgage-backed securities. It also extended the forward guidance on low rates to "at least through mid-2015" from "at least through late 2014."

While the market was expecting Fed moves, Kleintop says, investors really welcomed the Fed's statement that a "highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens." And the Fed suggested it would add to the QE program "if the outlook for the labor market does not improve substantially."

"In a way," Kleintop adds, "it's not just QE3 but QE Forever."

This unlocked cash on the sidelines, he says. Treasuries didn't do much Thursday as the stock market roared, suggesting that the money coming into equities wasn't from a rotation out of bonds but from cash, he adds.

The LPL strategist doesn't expect this kind of momentum to continue. Third-quarter corporate-earnings reports will soon come out, and revenue and profits are likely to be down from the year-ago period. That and the elections, and the worries about the "fiscal cliff," are all going to hang on the market during the traditionally difficult market months of September and October, he says.

For all the exuberance, the market isn't trading on fundamentals, adds Michael Mullaney, chief investment officer at Fiduciary Trust, but on liquidity created by central banks worldwide. It's the Alfred E. Neuman of rallies, he says, referring to the Mad Magazine character who famously said, "What, me worry?"

Despite the furious rally, it's a difficult environment for money managers, many of whom have returns that are trailing the broad market, he adds. "You don't want to fight the market," even if global economic growth and earnings growth are slowing.

Consequently, with a lot of cash still on the sidelines, "if we hang on to these gains through the end of October," there will be pressure on money managers to jump in and buy the rally to improve their 2012 performance.

HISTORICALLY THERE HAS BEEN an inherent bias among investors that the Republican Party is somehow better for the stock market. But barring a late collapse, the price return of the S&P 500 during President Obama's term, so far, would rank second-best since 1928, up 82%, according to a recent report from Leuthold Group, a Minneapolis-based institutional investor.

An even bigger surprise might be that four of the top five presidential-term returns belong to Democratic presidents, with the best one during Franklin D. Roosevelt's first term, when stocks rose a blistering 162%.

Sure, FDR's term came after the worst market debacle ever. And President Obama took office just a few weeks before the last terrible bear market bottomed, on March 9, 2009. Yet, of the five worst presidential terms for the stock market, four occurred when Republicans occupied the White House. The worst performance belongs to Herbert C. Hoover, under whose tutelage the market fell a whopping 73%.

Leuthold's report says that in the aggregate, the data since 1928 for the S&P 500 price returns don't support either party in the White House. The median return by term for each party is about 27%. We should point out, however, that studies have shown, and Barron's has reported, that higher average stock returns accrue to Democrats.

Leuthold's chief investment officer, Douglas Ramsey, explains this discrepancy by his use of the median. Since there is a small sample—just 24 presidential terms—and some very large outlying numbers both positive and negative, the average is skewed to Democrats. Also, there might be some differences due to Leuthold's measure from inauguration days, rather than calendar years.

Investors shouldn't base their vote on these results, he says. But they might rethink any knee-jerk assumptions on the relationship between party affiliation and market performance.

Republicans might "talk a good game" with investors, he adds, but their policies are either fully discounted by markets before their candidate takes office, or perhaps overwhelmed by larger cyclical forces. Or it could just be that the effect of their actions on the country's fiscal health is indistinguishable from that of the Democrats.

"In practice," the Leuthold report says, all three factors are likely at work.

SANOFI'S CONTINGENT-VALUE RIGHTS have become a more interesting bet since this column first wrote about them last Nov. 21. Earlier this month,
Sanofi SNY -0.5177055290950507%Sanofi ADSU.S.: NYSEUSD48.04
-0.25-0.5177055290950507%
/Date(1425419372097-0600)/
Volume (Delayed 15m)
:
965379
P/E Ratio
21.95071868583162Market Cap
127621246220.237
Dividend Yield
3.36365658455462% Rev. per Employee
397956More quote details and news »SNYinYour ValueYour ChangeShort position
(SNY) surprised investors with a tender offer to buy up to 86.8 million of CVRs, or about 30% of those outstanding, at a price of $1.50 to $1.75 each. Friday the CVRs (GCVRZ) closed at $1.73, up from $1.34 when mentioned here last fall.

The rights were granted to former Genzyme holders when the French global drug maker bought the U.S. biotech firm last year. The CVR, tied to Genzyme's drug Lemtrada for multiple sclerosis, is essentially a binary bet on the drug's potential approval by the Food and Drug Administration and subsequent sales. The potential value rises if certain milestones are reached over next few years. They are worthless, however, in the event that FDA approval—the first milestone—isn't obtained.

Around the world, more than two million people suffer from MS, a chronic, often disabling disease that attacks the central nervous system. MS is a $12.5 billion-plus treatment market with at least seven major drugs competing.

Sanofi's latest move suggests it "is reasonably confident that the $400 million sales milestone [and FDA approval] will occur," avers Brian Courville, a portfolio manager of hedge fund Ana Partners, which owns the CVRs. Since the holder would get $1 per share for FDA approval, and the current price is already $1.73, the market is clearly expecting that an FDA OK is a slam-dunk.

Yet, at this price level, investors are beginning to price in much more. If Lemtrada reaches the second milestone—more than $400 million in sales within 12 months of launch in six major markets, such as the U.S. and Germany—then the CVR would be worth another $2, for a total of $3. (See table above.)

There are other higher sales milestones down the line, should Lemtrada prove to be a huge blockbuster. For example, the CVRs could be worth $13 if Lemtrada reaches $2.8 billion in sales. But all that first hinges on FDA approval by the first quarter of 2014.

How effective might Lemtrada be? The latest Phase 3 trials have shown promising results. As for efficacy, "the data is unprecedented," says Mark Schoenebaum, a biotech and pharmaceuticals analyst—and an M.D.—at ISI Group. He doesn't cover Sanofi but followed Genzyme before it was acquired. Sanofi said in April 2012 that the latest Phase 3 trial showed significant reduction in the accumulation of disability, and some patients showed a reversal of disability.

Nevertheless, though the market thinks Lemtrada's approval is a foregone conclusion, investors shouldn't ignore the risks, such as potential adverse side affects. In April Sanofi noted, for example, that 16% of Lemtrada patients developed autoimmune thyroid-related problems, among other things.

And while the drug's safety profile improved in Phase 3 from Phase 2 tests, the ISI analyst says physicians will need to get comfortable with Lemtrada. "Sanofi will have its work cut out for it," he adds.

In terms of trading, particularly for institutional investors looking to buy or sell large slugs of these CVRs, the volatility could worsen, as the already thin CVR liquidity will likely be exacerbated by Sanofi's reduction of the outstanding amount of rights.

Still, the $1 value for the CVRs seems secure, Ana's Courville says, and at $1.73 "you're paying 73 cents for a 75% chance of $2 more."

There's potential big upside here, but this is effectively a bet on a single drug that still hasn't received FDA approval. As noted, failure to get the FDA's nod means the CVRs are worthless. What's interesting is that Sanofi's actions increasingly indicate that the company believes the risk/reward is getting more favorable.